San Diego Housing Bubble News and Analysis

I cant speak for the RE guys around here but the uptick in activity the last few days has been VERY, VERY noticable. Interest rates are under 6% for conventional loans and the payment on a 500K loan dropped more than $400/month. In areas with qualified buyers and relatively low inventory levels the market appears to have strengthened quite a bit around here.

That is going to hurt your cash buyers.

Where are the buyers coming from? Other markets, renters, move-up, investors, speculators?

sdrealtor:

do you think the high priced coastal areas are a year or two away from declining ?

given the risks in loaning money for homes i would presume interest rates will go up eventually. Who is going US mortgages at 6% ? Obviously not the Chinese

But here's what placing the two mortgage giants in conservatorship doesn't do: It doesn't loosen credit and underwriting standards, which have been tight for the better part of a year. So if you didn't qualify for a mortgage last week, your chances this week aren't much better.

Lending standards aren't tight. They are still pretty loose (you can still get a no-down loan from FHA). Lending standards are just not nearly as lose as they used to be. Hopefully the government won't give in and loosen standards further.

sdr I am really surprised by the activity bump as well.

The actual ride downward is a heck of alot different then the hopes of how it will be.

This is not an endorsement to buy now or anything like that. However for those of you hoping for large declines in a short timeframe in desireable areas... Well it may be time to readjust expectations. I am more then a little disappointed as a potential buyer and am rethinking my strategy given the lower interest rates.

These bailouts are going to keep happening and IMO will not do anything to cure the problem, yet they may indeed simply lengthen the decline and decrease the slope of the decline. Furthermore I am getting more and more convinced that we aint seen nothing yet with respect to the feds keeping the financing spigot open for homebuyers.

SD R,
I think we both went on record several months ago stating that there would be extraordinary efforts coming in the way of governmental interventions to prop up the RE market. Neither of us said it would save the market or turn it around but we were both pretty convinced it would slow the decline and spread out the pain over several years. I think we are seeing exactly what we expected. I was speaking with a high level mortgage exec last nite over a couple beers while watching the USC-OSU game, at least he was a high level executive. He said the declines in rates were simply the closing of the gap between the treasuries and mortgage rates to what we have traditionally seen. He thinks we have another .25 to .5% downward yet to come in the rates in the short term. At 5.5% on the 30 year fixed, we'll see buyers continuing to step up as 500K loans are very doable for folks with 150K+ HH incomes. These are the folks buying the 4BR 2500 to 3000 sq ft newer homes that will never drop below 600K on the low side IMO.

If I was an entry level buyer in a hard hit area I'd be thinking long and hard about buying if I could actually find a home I liked. One of these days, we gotta grab lunch or something for a few giggles over all the fun we've had the last 2 years. It has been fun....hasn't it?

Bob007,
We have already seen substantial declines on the coast. Not what we saw in the low areas which were always more bubblicious anyway and not what most around here want to see as its an area that is high on their wishlists but definitely substantial nonetheless.

The declines will continue but the worst pricewise has passed IMO. For example, my own home is down about 20% off peak and will probably go down another 10% off the peak number (or about 15% from where we are now). If I had to sell I'd rent my house before selling becaus eit would be cash flow positive in a big way. There are some weak hands in my hood but far more strong hands. Most people I know have 400K mortgages or less with household incomes of at least 150K with most substantially higher. Are these folks happy the price of their home has dropped? NO. Are they concerned about it? NO. My friends and neighbors regularly ask me what I think and I tell them. I get a few "that bad? Huh's?" followed by who cares I pad 400K for my house and I love it here. We're not going anywhere.

That's my story and I'm sticking to it.

sdr

original sdr,

I've seen a few big list price capitulations in somewhat slow to stagnant areas, that subsequently went into escrow fast.Don't know how heavy the bidding was. My instincts and educated guess is that it wasn't particularly heavy in most cases.
A client also got a really good counter from a low-ball on a REO.The response was quick. These are a mix of turnkey and fixer properties , non-distressed, short sale, and REO. They are around and up to a few hundred grand above the median.I-8 corridor and East County.I guess you are seeing this happen in stronger sub- markets too?I Don't know if there is any correlation to the bailout, but lower rates, if they have been a consequence,can not hurt.

You are probably seeing buyer's who, for example, placed an offer for 500k 3 to 4 weeks ago with a 6.25% rate and got countered at around 520k more or less, with a rate under 6% available today? Many if not most buyers are going to see that as an equivalent opportunity and go to escrow when they would not have previously, especially if rates had gone up in the interim.

The mortgage broker who I talk most with says nothing but the rates have changed (as of last week). He warned that getting PMI on for lower down buyers could possibly be a problem going forward. Have you seen that?SDR?

I did get an add in my e-mail for stated loans. You probably got it too? I didn't look into it. All stated probably has really high LTV's and is not causing any increased activity.

I am not interpreting a bottom here or even a trend change. Even after good negotiating, properties in the price range and areas that I mostly focus on have more drops ahead for the most part.

Anyway, recalling that we have talked about a "gut felt" experience of when the market peaked, probably a blend of instinct and observation, I think we will similarly catch on to any durable end to the trend of price declines(keeping in mind sub-market variation, armageddon etc.).

What more can the gubmint do? They've already nationalized Fannie and Freddie. That's pretty huge.

I agree thought that the bottom keeps getting pushed out with all this taxpayer money flying around. However, if we start to see job losses among the relatively high earners, then Uncle Sam won't be able to prop up prices any longer. If San Diego can somehow avoid a recession, then the worst of the declines may indeed be over.

What else can the gubmint do? I think we just saw more this morning.

As for the high earners in San Diego, they dont typically work for large local employers. SD has never been home to major corps like other large metros are. This makes it a more piecemeal process for high wage earners to succumb.

I have a question for the SDrealtors. The spike you are referring to, are those new homes?? I found this quote in a John Mauldin weekly letter about calling a bottom in the housing market.

"There is a problem though, and that is the recently enacted housing bill eliminated seller-funded down payments, and this was 17% of new home sales. Watch for a rise in the number of new homes sold in September, as the new law does not take effect until October. Home builders will be telling people to buy now before this ability to help with the down payment goes away. But cheerleaders on TV will be telling us the market has turned. They won't be saying that in November."

So I'm a little skeptical on this spike in sales. You could be pulling future demand into the month of Sept and if that is true the balance of the year is going to be dismal.

Methinks it is still premature to make a conclusion on high end So Cal just yet. If you haven't noticed we are in THE MIDDLE of a very severe financial crisis. We still do not know the true impact on Main Street. The old timers that I work with in my industry are telling me they have never seen anything like what we are going through right now. Roubini who basically has been elevated from crazy permabear to Savant is predicting a 12 to 18 month recession if we are lucky.

"As for the high earners in San Diego, they dont typically work for large local employers. SD has never been home to major corps like other large metros are. This makes it a more piecemeal process for high wage earners to succumb.'

sdrealtor, the same was true in 2000.

Regarding the future bailouts directly in the housing market here is a video of Roger Altman former Deputy Treasury Secretary on CNBC last night

http://www.cnbc.com/id/15840232?video=85...

Basically he is saying that trying to put a floor in the housing market will be highly difficult and highly unlikely due to the financial magnitude being beyond what the system could do.

A lot of the commentary out there suggests at least two things that I see dragging prices down even further regardless of rates, inventory levels, or how how strict lending standards are:

- job losses: likely to shoot up further
- down payments: up to 20% now required

If someone is in a recession-proof job and sitting on $200k to drop into a house then they'll be okay, but that brings up another issue: buyer sentiment.

I think most people believe all the experts who claim prices will turn-around in 2009. Once that idea fades, particularly in the post-bubble areas they'll likely wait it out longer.

We're 2 years into the correction of a 10-year run-up that when it should have ended in 2002 went absolutely insane the next 4 years.

The 30% drop so far may be half way, but expect declines to slow and then stay flat for some time.

LA R,
the activity spiek I've seen has been resales. I cant even say whether they are actually buying but they are out there en force at a time of year when they usually arent.

I agree that the make up of high wage earners was similar in 2000 though the trend seems to grow by the year as more boomers/mobile workers move here for lifestyle. I would bet that the number is dramatically higher now than in the early 90's whne we werent so mobile.

I dont think either of us SDR's is trying to say it will create a floor. What is does is spread the pain. It makes some sellers more optimistic, buys some more time, doesnt help others, increases affordability for some buyers, gives some buyers more confidence and doesnt impact others. Its all over the board but the end result is more slow bleeding.

Coop,
Optimistic people will always think next year will be better. In 2009 they'll expect things to turn around in 2010. It will never change.

Also we are almost 4 years into the correction not 2 years. Things changed in 2004 and even though fruad kept some things together after mid 2004 we were done on the way up then.

This is a good thread... I like it when threads run good like this...

My statement was indeed with respect to resales as well and was attributed to both offers from clients of mine for homes, closings I have made for a few clients on the buyers side, showings I have had on two listings in particular, and other conversations with some other agents. The former I take at face value believe me but I will be honest and say that yes there has been an increase in activity. I am not telling anyone to buy, just telling you what I have seen.

Another item is really a fundamental lack of quality listings. Even in the desireable areas the available homes are either not of great quality for the price (aka sellers in serious denial) or those that are, seem to get alot of attention.

Also as sdr said this commentary is nothing but a snapshot of the feel of things over the past few weeks. As we all know it can change quickly and by no means represents a dynamic change in the secular nature of the cycle.

*****

I do believe that in order to get another chunk downward we still need an external catalyst such as a radical move up in interest rates or unemployment. Without either of these I think we will tread water slowly downward with deviations provided by distress that will help lower overall medians... (hopefully)

*****

LAR I feel that we are indeed going to nationalize the lending industry or create some monstrosity that will be like the FHA on steroids.

Let's be honest here, we already have essentially done that at the secondary level. However I do believe that the government wants to reduce the exposure of the two former GSEs from 5 to like 2 trillion. How the HELL will that happen?

I guess what I am saying is that I feel that the government cannot FORCE sellers to reduce the asking price BUT the government can sure the HELL provide credit for people if the free market will not. Alternately the government can grease the free market in the form of insuring the loans in one way or another.

You kind of see what I am saying?

As sdr said, 2 years ago we were all in agreement of an oncoming or existing depreciation cycle. We all bantered around different timeframes and amounts but there were differing opinions on how involved the government would get. I think it is become very clear that the government is going to go all in with respect to this battle.

I am so very happy that they let Lehman go down the tubes. However I think the government has and will take steps to keep liquidity available for potential homebuyers. As we have all agreed, this is not a liquidity crisis, it is a SOLVENCY crisis right?

Sorry for rambling... again, this is no endorsement to buy, nor am I calling for any bottom here. Yet, I am very uneasy about how far down the road our federal government will go?

I keep wondering what will happen in 2010. That is when the GSE's are suppose to start being net sellers instead of buyers. With no insurance, crippled banks and investment houses and burned investers, who is gonna be buying this stuff again? So then the fed doesnt sell, and yet trying to limit its exposure, starts trying to limit incoming loans. Fannie already not accepting AltA as of 2009. No AltA, No subprime, No liar loans, 20% down, full income qualification, low demand for RE bonds.
I really think the GOV is trying to find a way to fix housing in the rust belt without bubbling housing in CA/FL. I dont think they can do it, but that wont keep them from trying.

Coastal california will be the last shoe to drop. Imagine a $20 billion extended cut in the California State Budget.

The government is incapable of nationalizing the lending industry. It takes money away from all other social programs that Obama wants or the wars McCain wants to prosecute. They will alllow interest rates to rise to allow market forces to function.

Interest rates from 6% to 9% will marginally affect housing in Dallas or North Dakota. It can put a Texas size hole in the California market.

"The government is incapable of nationalizing the lending industry"

Well I guess we will see about that won't we.

Two years ago many would have thought it would be incapable for the government to put a 29 billion dollar collar around a Bear Stearns "buyout".

I don't think there is anything that our government is incapable of doing wrong.

So far the (stronger)financial institutions and pols seem to want a correction plus bailouts of the type we are seeing. Foreclosure moratoriums could still be in the future. I think unemployment would have to go up quite a bit.

In the depression 25 states succeeded in placing foreclosure moratoriums, some for as long as 5 years. Aguirre was scoffed at for his "safe haven comments" but he has company... and it could grow.I have read that he has been harping AG Brown to get out of closed door meetings with the banks and and join him and his supporters.

When average people who bought responsibly and have fixed mortgages with no additional loan balances from time of purchase start to get evicted by foreclosures(probably because of unemployment), in mass, we might see more grass roots organization in this direction.
I guess It depends on how far the economy spins out of control.

It is obvious, as several posters have stated, that more "gubmint" intervention is in the works.Whether or not we get to this is to be seen but I think the selective use of moratoriums is possible.

As SDR has said many times, and may be correct about, it could be a whole new ball game if the liberal, populist element gets strengthened in these elections.

I think it would be kind of a surreal experience buying a house under a foreclosure moratorium. Wierd.

Bump

There'll be no talk about moratorium after the elections. I expect quick mark-to-market all-around as the only way to end the initial denial phase and with minimal risk for the establishment.

On top of that, a recent report from the Mortgage Bankers Association indicated that lenders are delaying foreclosure altogether. They reported that while 6.41 percent of all loans were delinquent, just 2.75 percent were in foreclosure.

It seems to be a tough market for buyers this fall/winter as well.

WFC came right out and said that they changed their policy of catagorizing "non-performing" loans to 120 days in arears from 90 days. (I think I got the numbers right.)
Cant get too much more obvious about delaying the foreclosure process than that!